Identifying the impact of the interest rates upon Islamic banks is key to understand the contribution of such institutions to the financial stability, designing monetary policies and devising a proper risk management applicable to these institutions. This article analyzes and investigates the impact of interest rate shock upon the deposits and loans held by the conventional and Islamic banks with particular reference to the period between December 2005 and July 2009 based on Vector Error Correction (VEC) methodology. It is theoretically expected that the Islamic banks, relying on interest-free banking, shall not be affected by the interest rates; however, in concurrence with the previous studies, the article finds that the Islamic banks in Turkey are visibly influenced by interest rates. JEL classification: G21; E52

This work is a study on Islamic finance development and economic growth nexus for Turkey. It employs the econometric methods of unit root, co-integration, and Granger causality in a VECM framework; and the results, which are robust to all measures of Islamic finance development, show a unidirectional short and long run causality from Islamic finance development to economic growth. Hence, it is recommended that policy makers increase their efforts in promoting Islamic finance in Turkey.

Purpose – This study aims to test whether the Islamic bank rate of returns are affected by the deposit rates of the interest-based bank in Turkey and whether they need to develop additional tools to manage it if they face an interest risk. Design/methodology/approach – This study tests the causality between the Islamic bank rate of returns and the time deposit interest rates between 2002 and 2010 in Turkey by use of the Granger Causality method based on monthly data. The same analysis is repeated with respect to the terms before and after 2006. Findings – It is concluded that for each term, the time deposit interest rates are the Granger cause of the Islamic bank rate of returns. This causality relation is more visible for the period after 2006. Originality/value – The results shows that the Islamic banks are sensitive to the interest-based bank interest rates in Turkey. Therefore, this finding suggests that these banks need to remain cautious vis-à-vis the interest rate risk.

Purpose The reasons for Islamic bank preferences have been extensively covered in the literature where religion has been depicted as a strong factor. In the limited number of accounts on this subject in Turkey, it was found that religiosity is a major factor in the selection of Islamic banks. Design/methodology/approach This study evaluates the findings of a major field work performed in the period between March and May 2011 in Eskisehir with the participation of Islamic bank customers. In the study, a sample of 500 respondents was used and a semi-structured survey was conducted. Findings According to the findings, religiosity is not the most significant and leading factor in Islamic bank preference; instead, it was found as the fourth most important factor. The study finds that recommendation by friends and relatives is the most significant factor for the people in preferring Islamic banks. The nationalist-conservative people make stronger reference to the religiosity as a factor than the secular-modernist and leftist-social democrat people do. Socioeconomic status is not found as a significant factor in the Islamic bank preference. People in advanced age, men, people with lower income and businessmen/artisan rely on the religiosity in Islamic bank preference as a factor stronger than people from other backgrounds. Practical implications In conclusion, it could be said that there is a strong relation of substitution between Islamic banks and conventional banks in Turkey and that the Islamic banks play significant role in inclusion of the people staying out of the banking system due to religious concerns and considerations in the financial system. Originality/value It is very comprehensive, both politically and economically, to handle the issue of Islamic banking.

Despite differences in the principles by which they operate between the participation (Islamic) and conventional banks, there is no huge difference between the products and the services provided by these banks. The distinctive features of the participation banks, compliance with the Islamic precepts, are not the only way for these banks to appeal to the customers. For this reason, customer satisfaction is an important element in the banking sector. The major goal of this study is to analyze the level of awareness and satisfaction among the customers of the participation banks. This study which uses the data compiled through the surveys held in Eskişehir with the participation of 500 Islamic bank customers reveals findings that suggest that most of the customers are satisfied with the products and services by the participation banks and that they have high level of awareness on the Islamic banking products.